Trading Vs Investing vs Gambling – So, driven by this desire, everyone – one way or another – finds a way to get money. There are three such well-known avenues of earning extra income, namely investing, trading and pure gambling.
Many people confuse trading with gambling and stay away from it because it will lead them to lose money at the end of the day.
Some others don’t really understand the difference between trading vs investing and in this confusion, they actually lose a lot of money.
Let’s discuss the differences between these paths and the pros and cons of each of them so you know which one might work best for you!
Trading Vs Investing vs Gambling
The first approach is to invest in equipment for a long time.
Investment goal: The primary goal of investing is to gradually increase one’s wealth over a period of time by buying and holding a well-researched portfolio of stocks, baskets of stocks, mutual funds, bonds and other investment instruments for an extended period of time. Is.
How Investors Earn: One of the ways that investors make money is by reinvesting any profits into buying more stocks and growing an asset. Since the time period is long enough to invest, investors also get dividends from their shares and benefits from stock splits.
If you want to know stock split in a better and better way then you can review the article Example of Stock Split.
Investment Process: Investors are not worried about day to day fluctuations in the prices of their shares as they do not aim to make quick money in a short period of time. They thoroughly research the various aspects of the companies where they want to invest.
They basically analyze companies and try to gather as much important information as possible before investing in a particular stock. Last few years’ balance sheets, profit and loss statements, annual reports, management discussions etc. are the things they look for.
The information they try to gather is not only about the financial health and management of the company but also about the long-term growth prospects of that particular sector and industry. It takes a lot of foresight and knowledge about the economy as a whole to make an investment decision.
This is the reason why investors feel confident after a short-term fall in the share prices as they expect the stock prices to rewind and give them good returns in the long term which may be few years or even decades. Is.
You have a plethora of reasons to invest, one of them is to invest in IIFL Finance NCDs which are giving better returns than other segments.
Trading Vs Investing vs Gambling
Another avenue of additional income is trading. This is done for short-term returns.
Trading Goal: The goal of trading is to make quick money through frequent buying and selling of a stock, commodity or currency pair. They want to move beyond the buying and holding game, which includes investors.
With this understanding of the goal, many of the concerns about trading versus investing are becoming apparent.
How Traders Earn: Traders focus on buying at low prices and selling at high prices within a relatively short period of time. If they are bearish about a certain stock, they try to make a profit by buying first at higher prices and then at lower prices. This method is called short selling.
This is another way how the trading vs investing difference can be understood.
Trading Process: Trading News play based functions. They try to keep track of all company news that may be relevant in bringing about changes in stock prices. The following types of information are demanded by traders:
- Company news and releases regarding earnings, profits and projected future earnings.
- Information about the launch of a new product or improved product.
- Dividend payment information.
- Plans for organic growth or obtaining a new major contract.
- News about a potential merger or acquisition affecting the company.
- change in management.
- Any fraudulent activities that have come to highlight, etc.
All these types of information help the trader to do their trading but in spite of this, sometimes the stock price does not move in the desired direction. Since the time frame of the trader is relatively short, they also incur losses.
They decide their stop loss before entering the trade and stick to it to avoid even more losses. The relationship between risk and return is quite simple. The higher the amount of withdrawal, the greater the risk exposed.
Traders often use technical analysis tools, such as moving averages, stochastic oscillators, etc., to make their trades more likely to have a higher win.
You can also play virtual trading games to understand trading better where you will get the same experience as share market trading. Along with this, you can also get experience like share market by doing paper trading.
Trading Vs Investing vs Gambling
This is another kind of hope of earning money and it is the most dangerous of the three. Gambling is defined as breaking something on a contingency.
Gambling is a time bound event and once the game is over, the earning opportunity is over.
Someone has either won or lost the game. A gambler puts money in the hopes of a payoff if a random event occurs. The odds are always against the gambler and in favor of the house.
Despite this, people expect that if they win the game by any chance, they will hit the jackpot. The only thing a gambler has is the luck factor. The gambler needs no equipment and no strategy, as is the nature of gambling.
The shocking part is that many people do not know themselves that they are gambling in the market.
For example, when pressured by peer pressure, a person decides to invest in the stock market and enters into transactions without sufficient knowledge and understanding of how things work. Entering a transaction without a strategy or stop loss is a form of gambling.
Gambling becomes like an addiction because it involves a lot of excitement and a constant hope of winning the next game. If one loses, the hope arises to cover all previous losses and make a profit. If one wins, one way or another is expected to win another game and generate a larger fortune.
Thus, it is difficult to stop.
So, what are you actually doing?
Now we know the differences between the three, especially the difference between trading vs investing.
We just need to introspect and try to know how we want. In order to make the best financial decision for ourselves, we need to know our exact financial needs and match our patience level. We can choose to invest on trading if we want a stable and less risky return on investment.
Although the returns may not be profitable as the returns traders can enjoy by trading frequently, one will not need to worry about the day’s volatility. People who do not have much time to dedicate to think about growing money on daily basis should opt for investment option.
On the other hand, if one is ready to be on one’s toes at all times and actively engages in active events, one can think of becoming a trader. The returns can be huge and the risks can be covered by using complex and advanced strategies.
The time consumption on a daily basis will definitely be high but it can totally be worth it. Then, comes the option of gambling. If one has a lot of money and it is not a big deal to lose with a small portion of the money in hopes of hitting the jackpot, then one can try their hand at gambling.
Everyone wants a lot of good luck on someone’s side to gamble.
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